Budget was much more positive for bonds than expected says Sameer Goel, Head-Asia Rates and Currency Research at Deutsche Bank.
Goel believes the Finance Minister opted in favour of credibility premium by sticking with the fiscal consolidation target.
Since the start of the year we have seen big outflows from the market and that had made investors nervous if India was victim of all the negatives in global markets, he says adding, the Budget has brought about some amount of confidence.
He expects emerging market currency including Indian rupee to be under pressure.
Although hard to provide a short term view, he says, 10-year bond yield might hover around at 7.5 percent by second half of the year and the rupee would be around 68-70 to a USD going into later part of the year.
Below is the transcript of Sameer Goel’s interview with CNBC-TV18's Anuj Singhal and Sonia Shenoy.
Sonia: What has the takeaway been from the conference today?
A: It has been interesting. There has been a lot of interest which has come back into India to be honest. Going into the conference there was at one point in time the idea whether the India story was in a way coming off the boil but the Budget is to some extent revived a lot of interest into the country, into the trade, more generally the macro trade on equities and currencies and interest rate. And there has been some very good takeaways, obviously recognising what the issues and problems that are both with an interesting perspective of domestic versus offshore investors in what they are looking at and it is just the beginning. We have a three day conference, so I am sure a lot to look forward to.
Anuj: We have see big rally in bond market, big rally in rupee market over the last couple of days. But if you put it in context before that we had a bit of a sell off as well. So, do you think with correction of that and secondly from this point on do you think the bond rally is here to stay?
A: There is definitely a part of it, probably even a substantial part of it which I would argue is correction to bearishness which has built up on both bonds and currencies. Since the start of the year we have seen one of the bigger outflows from the market as compared with everything else in the region and that had clearly started to get people more nervous about whether the India story was finally being claimed as a victim to everything which is happening in the global market. At the moment the Budget was clearly a positive surprise as I like to put it, there was a sweet spot hit, there was clearly in some sense the gamble taken to try and build on the credibility premium of keeping to a fiscal target but that in a way was a sweet spot between the equity and debt investors that both markets were managing to take away something positive from it. Some of it was position correction. As to where we go from here I still find and I would take probably a conservative approach that it doesn\\'t necessarily shift the needle on a lot of the very underlying macro fundamental issue. In the country there still is, while it looks to us increasingly like the reserve bank would cut rates once more but it is not obvious to me that whether they will read into what happens with structural reforms sufficient to allow Reserve Bank of India (RBI) to have a larger space than just maybe one more rate cut. It is still something to be decided.
Sonia: If you had to give us two levels, one on the rupee and one on the bond markets, of course the Budget was more positive on bonds than one would have expected but from here on where do you see the bond yields?
A: It is very hard to say short term. Short term we will probably see a little bit more of this rallying specially in anticipation of the next rate cut. What will become very important is the guidance from the reserve bank after that and whether there is a deeper cycle in place, beyond 6.5 but I would argue if he was to look on the second half of the year or where we try and civilise I will still argue it would be about 7.5 percent on yields and I would argue probably in the 68-70 region as far as dollar-rupee is concerned going into the later part of the year.